ABC News' Alice Gomstyn reports: On the heels of JPMorgan’s purchase of Washington Mutual –- the largest bank failure in U.S. history -– a new bank merger has been announced. This time, though, the Federal Deposit Insurance Corporation assures us that a bank failure wasn’t part of the mix.
The FDIC indicated that the Citi deal was good both for the government and Wachovia customers.
“All depositors are fully protected and there is expected to be no cost to the Deposit Insurance Fund. Wachovia did not fail; rather, it is to be acquired by Citigroup Inc. on an open bank basis with assistance from the FDIC,” according to the press statement.
But it’s not guaranteed that the FDIC will not eventually have to shell out money on the deal.
Citi has agreed to absorb up to $42 billion in losses associated with Wachovia’s loans, but the FDIC, according to the statement, will be on the hook if there are any losses beyond that. In return, the FDIC will receive $12 billion in preferred stock and warrants.
FDIC chairwoman Sheila Bair said the deal was necessary “to maintain confidence in the banking industry given current financial market conditions."